British annual inflation soars to three-year high

18th October 2011, Comments 0 comments

Britain's annual inflation surged to 5.2 percent in September on soaring energy prices, reaching a three-year high and far above levels in other major European countries, official data showed on Tuesday.

Analysts said British inflation may rise even further before the end of 2011 but should fall back sharply next year as sliding demand for energy caused by a global economic slowdown weighs on oil, gas and electricity costs.

Britain's Office for National Statistics on Tuesday said annual Consumer Prices Index (CPI) inflation soared from a level of 4.5 percent in August.

Analysts had forecast a jump to 4.9 percent in September, according to a poll by Dow Jones Newswires.

"By far the largest upward pressure to the change in CPI annual inflation between August and September came from increases in gas and electricity charges," the ONS said.

"There were also large upward pressures from air transport and communication services," it added.

The office said the latest figure was the highest since also hitting 5.2 percent in September 2008, a record for CPI inflation. Britain was hit by double-digit inflation in the early 1990s under a separate measure.

CPI inflation jumped by 0.6 percent in September from August on a month-on-month basis, the ONS added Tuesday. That was also higher than analysts' expectations of a 0.4-percent increase.

The 5.2-percent annual figure is meanwhile far higher than the Bank of England's target rate of just 2.0 percent and easily beats current inflation levels in other major European economies, where prices are also jumping.

German annual inflation stood at a three-year high of 2.6 percent in September.

In Britain, "September's unexpectedly sharp rise in headline CPI inflation from 4.5 percent to 5.2 percent is a bit of a nasty surprise," said Jonathan Loynes, chief European economist at Capital Economics research group.

"But the key point is that inflation is either at or close to a peak and should soon start to fall back quite sharply."

The annual inflation rate has also soared this year owing to an increase in value added tax on goods and services sold in Britain.

"Inflation should start heading down at the end of the year and then dip markedly at the start of 2012 as the impact of the January 2011 VAT hike from 17.5 percent to 20 percent drops out," said Howard Archer, chief UK economist at consultants IHS Global Insight.

"Consumer price inflation could very well be down near to the Bank of England's target level of 2.0 percent by the end of 2012, and it could very well dip below this level in 2013. Much will obviously depend on oil price developments."

Oil prices slid for a second day running Tuesday as weaker-than-expected Chinese economic growth sparked concern over a slowdown in demand from the world's top consumer of energy.

However China, the world's second biggest economy, still managed to expand by a huge 9.1 percent in the third quarter, which compares with British growth of just 0.1 percent in the second quarter of 2011.

A respected forecasting group on Tuesday warned that Britain's economy was at a "dangerous junction" because of the eurozone crisis and the weak global economic outlook.

The Ernst & Young ITEM Club also urged the Bank of England to cut its key interest rate to just 0.25 percent from an already record-low 0.50 percent to help Britain avoid falling back into recession.

The Bank of England decided earlier this month to inject another £75 billion (86 billion euros, $115 billion) of new money into the British economy to help support growth.

© 2011 AFP

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